Large upstream dairy farming groups
represented by Modern Farming Group Co., Ltd. (hereafter, Modern Farming) also
presented decent financial reports. Modern Farming’s net profit of the first
half year of 2019 shot up by 265.2% compared to last year, reaching 125 million
Yuan. China Shengmu Dairy Co., Ltd. (hereafter, Shengmu)’s interim net loss was
75.3 million Yuan, reducing significantly by 93.66%, and its farming business
turned from deficit to profit and achieved a net income of 32.2 million Yuan. 51%
of Shengmu’s equity has been sold and transferred to Mengniu in the first half
of 2019. Zhongdi Dairy Group Co., Ltd. earned a gross income of 257 million
Yuan with a year-on-year growth of 7.8%, the gross income of its dairy farming
business surging by 36.4%.

A close look at the whole
dairy industry chain from dairy farming to dairy products processing reveals
that one year after the State Council’s issue of The Instruction on Promoting the Revitalization of the Dairy Industry
and Securing the Quality Safety of Dairy Products in June 2018, the
purchasing price of raw milk increased by different levels in most regions, and
the sales revenue of leading dairy companies hit a new height in the first half
year of 2019. The dairy industry’s performance reflected in the semiannual
financial reports recently released is indeed worthy of approval.

After 10 years of fast
development, China’s dairy industry has come to the forefront in the world in
terms of dairy farming and processing equipment and technology, with numerous
remarkable achievements. However, the shift of international trade pattern and
the slowdown of domestic economic growth exposed many unsolved and inescapable
problems that domestic dairy industry is facing now: the high production cost of
raw milk, the weakness of consumer market of dairy products, the tardiness of
building a system that connects the whole dairy industry chain, the
environmental pressure that results from the disconnection between dairy
farming and crop farming, the excessive dependence on imported technologies and
equipment, etc. Under such background, we need to reflect on how the dairy
industry should develop in the following half year and in further future. How
should we understand and undertake the tasks set at the National Meeting on Promoting the Revitalization of the Dairy Industry?
How can we actively develop family dairy farms, build and boost dairy farmers’
cooperatives, support qualified farmers and cooperatives to participate in
dairy products’ processing and sale, establish a sound practice that allows
farmers to share the benefits of the development of dairy industry, and
safeguard the dairy farmers’ interest? With these questions, China Dairy interviewed Mr. James Su, Secretary-General
of Sino-Dutch Dairy Development Center (hereafter, SDDDC), and Executive Director
of East Rock Farm Technologies Co., Ltd.

Mr. James Su, Secretary-General
of Sino-Dutch Dairy Development Center, and Executive Director of East Rock
Farm Technologies Co., Ltd.

Viewing China’s Dairy Industry
from Three Angles

First Angle: Secretary-General
of SDDDC

“I would like to view our domestic dairy
industry from three different angles. First I want to read the industry from
the perspective of a member of SDDDC. I joined SDDDC as a member about one year
ago, and this year of working in the Center allows me to experience more deeply
the differences between the dairy industries in the Netherlands and in China,
and to understand more thoroughly how different roles contribute to the
industry. I myself participated in the fifth training trip to the Netherlands
in April 2015. All those experiences gave me the unique chance to observe the
dairy industry more closely.”

“Secondly I would like to view the dairy
industry from the perspective of the Executive Director of East Rock Farm
Technologies Co., Ltd. For more than ten years in the past, East Rock has been
committed to introducing technology and equipment for intensive dairy farming
into China, which gives us considerable experiences. If you look closely into
the Dutch way and the American way of developing dairy industry, you will see
that the Dutch way can be compared to a French dish while the American way is
more like a McDonald’s Share Box. The Dutch way takes an individual approach
and focuses on each and every cow’s wellbeing, while the American model takes a
herd approach and puts the group’s welfare in the first place. The farming technologies
and equipment used in these two countries overlap in some area but
differentiate from each other in other areas. If we compare our domestic dairy
industry with that of the Netherlands and the United States, we can better
understand many problems we are now facing.”

Fifth SDDDC
Training Trip to the Netherlands (April 2015). By September 2019, 23 training
trips in total have been organized.

Third Angle: Loyal Consumer of
Dairy Products

“Finally I would like to view the
dairy industry from the perspective of a consumer. Three generations in my
family are all loyal milk consumers. My child, particularly, drinks at least
four cartons of milk—that’s no less than one liter—every day. At first I thought
it was just my child, but later I found that her classmates and friends, when
visited us, all opted to drink milk when they were thirsty. This might reflect
the consumption habit of the younger generation in our country, and it also
gives me a new standpoint when I think about the dairy industry.”

Three Reflections for the
Revitalization of China’s Dairy Industry

“The dairy industry has flourished
in the past decade, but we have to reflect on our achievements in a rational
and objective way.” “From the macro perspective, the whole industry has
explored its way to development with Chinese characteristics, and the dairy
products are becoming richer. More specifically, the technologies and equipment
imported to China have reached the top level in the world. Why would
revitalization of dairy industry be proposed again in the D20 meeting under
such background, when the dairy industry has made a great leap forward in the
past decade? And what is to be revitalized? I believe that the ideas of
developing family farms that Vice Premier Hu Chunhua put forward at the meeting
set a clear goal for the development of our domestic dairy industry.”

Li Shengli,
Chief Scientist of the National Dairy Industry and Technology System/Director
of SDDDC, with Xue Wenjun, owner of a family farm, and his family

“Why are family farms able to
not only survive and thrive in the Netherlands, but also make the country the
second largest exporter of agricultural products and a leading power of dairy
industry in the world in the sense of innovation and development? The following
are three reflections that I believe are worth thinking about.

I.Sustainable Ecosystem of the
Industry

“There are only less than 20 thousand family
farms in the Netherlands, and yet they are able to make the country one of the
strongest dairy powers in the world. Why? I think the reason behind it is a
sustainable industrial ecosystem that allows all the practitioners to survive
and thrive.”

“When I joined the training trip to the
Netherlands in 2015, my first impression of the dairy industry in the country was
that the farm owners were working for others—for the processing factories, for
the banks and financial institutions, for feed companies, breeding companies
and other chain links of the industry chain. However, as I learned more, I
realized that this was not a precise description of the relationship between
the dairy farm owners and other players in the industry. In the ecosystem of
Dutch dairy industry there is no superiority over or inferiority to others of
any individual or company, whether they are in upstream of the industry chain
or not. Farm owners are the ones who initiate the value chain of the industry.
Therefore, it may also be reasonable if we view the breeding companies, the
banks and other service suppliers as being working for the farm owners. More
precisely, I think it is a mutually dependent, win-win relationship, in which
every party respects and communicates with each other on the basis of equality.
This is the most important force that drives the Dutch dairy industry to
develop sustainably over the past few centuries since 1400s.”

“Back home, we are in the process of leaping forward
and creating our own industrial ecosystem. Compared with the Netherlands, the
dairy industrial ecosystem that is forming in our country tends to follow the
law of the jungle. The players in the industry let others run their own course
and only the fittest can survive, which is hardly a sustainable ecosystem for
the development of dairy industry. If we want to revitalize the industry, we have
to face the challenge of sustainability. To solve this problem is vital for the
revitalization of the dairy industry.”

“I believe that in this new age, the
government is able to lead and design for the industry, which will support the
establishment of a more sustainable ecosystem and maintain its balance. Only in
this way can the practitioners of the industry avoid panic or anxiety.”

“Besides, the leading companies in the dairy
industry should take into account their social and industrial responsibilities.
In the past, the dairy industry experienced mostly the capital-driven campaign-style
development, which, to some extent, shows the hard power of our country’s
economy. However, the development of dairy industry is not a hundred-meter
dash, but a long-distance running, a Marathon even. Therefore, the ‘soft
power’, the reserves, is what determines the final results, but from the
released data we can see that the total dairy herd in China has dropped from
the previous period and from last year, and that many legendary figures in the dairy
industry have been forced to leave this field. The industry is losing its reserves,
because the current ecosystem does not allow the farmers to focus on farming
without worrying over other things. If there is one thing that China’s dairy
industry needs most urgently, it is definitely a sustainable industrial
ecosystem!”

II. Innovation Capacity and
Intellectual Property Protection

“Over more than 10 years in the past, China’s
dairy industry has almost incorporated all the most advanced technologies and
products into its own development. However, what have we really obtained? Did
we merely get the fish or have we also learnt the skills to fish?”

“The core problem is the lack of innovation
and intellectual property protection. In China when people talk about
innovation, most of the time it is just modification or even duplication of
other people’s mature products. This is definitely not innovation.”

“How does the Netherlands’ dairy industry
foster innovation? There is an important link in their industry
chain—scientific research institutions. The combined efforts of those
institutions and dairy companies generate scientific research results that will
then be converted into new products and solutions with the supports from the
government and the industry. In China, however, such a mechanism that allows
the scientific research institutions and the industry to communicate and share
knowledge and experiences more effectively has not been built yet, so the
institutions are not able to facilitate the innovation of the industry.
Moreover, in an environment where there is no strong awareness or sound legal
system to protect intellectual property, the achievements of innovation can
hardly be well protected.”

“Take dairy farms’
environmental protection problem as an example. Each and every dairy farm
demands considerable land to absorb the waste water they produce, and yet the
reality is that the available land for dairy farms is very limited in our
country. Therefore, reducing the waste water by all means is essential for the environmental
protection. The amount of manure the cows produce—about 67 liters per cow per
day—cannot be reduced, so lessening the use of water in the facilities is key
to cut down the total amount of waste water the farms produce. For most
domestic dairy farms, the heat stress starts from mid-March to late September
or early October. Whether to use cooling water to diminish the heat stress
during this half year is a dilemma for many farming companies. If a farm adopts
the traditional spray system to control the heat stress, the amount of waste water
produced in this period of time will reach to 55 tons per cow on average, which
will impose great pressure on the farm’s manure system and the environment.
This is a tricky problem of the industry. To solve this problem, East Rock
invested a lot of funds and time on the research on innovative precise spray
system, which has been put into trial use in JinYinDao Farm of Beijing Capital
Agribusiness Group and Ma’anshan Farm of Modern Farming. Our test results show
that this precise spray system can reduce water usage by 65% and effectively ease
the decrease of milk yield, balancing between saving water and diminishing heat
stress. However, such a meaningful innovation that helps to solve a universal
problem in the industry did not receive much support from the government grants
or industrial public funds, but was developed solely on the company’s own
resources.”

“As for the intellectual property
protection, East Rock introduced Cyclone fans into domestic market in August
2009 and then devoted ten years to upgrade and promote the products, only to
find numerous unauthorized copies of our Cyclone fans in the market when the
customers finally accept them and recognize their effectiveness under East
Rock’s great efforts. When we tried to protect our intellectual property, we
encountered some unpleasant, unreasonable obstacles. This reveals that in
domestic dairy industrial ecosystem, there is no mechanism or rules to protect
intellectual property.”

“We are facing a great opportunity to surpass
other dairy powers in terms of technological innovation, as dairy industries in
North America and Europe have reached a plateau where the driving forces for
innovation have weakened and the demand for improvement is not as strong as it
used to be. We developed the precise spray system because of the pressure from
environmental protection, but this innovation is not only beneficial to us. In
fact, it may have great potential in many emerging dairy powers, for example,
Middle East countries, where many dairy farms use costly desalinated sea water
in their facilities. Even in the United States, some places such as California
where pollution from dairy farms has become a big trouble, may need this
innovative system as well. In this sense, we have come to the forefront in the
technological innovation in this field.”

Diagram of
Precise Spray System on Farm

“This kind of innovation is
essentially driven by market economy. Enterprises are willing to invest on
research and development even in this relatively primitive ecosystem in our
dairy industry, so long as there is market demand. However, if the innovation
can become a common will of the whole industry or even the whole country, it
will certainly further boost the dairy industry’s development, but it will only
become possible if there is a sustainable ecosystem to underpin the
innovation.”

III. Communication Capacity

“From Grass to Glass, how do you convince the
customers of your idea? This is a question a journalist from Xinhua News Agency
raised to Atze Schaap, Global Director of Dairy Development, Royal
FrieslandCampina N.V., on SDDDC’s fourth anniversary celebration in 2017.”

“This was not achieved overnight. It is not
that I tell them today and they will immediately take it tomorrow. For about a
hundred years, we insist on doing right things, sending right, reliable
messages. This is why the customers will accept our ideas without doubt when we
tell them, because we have never lied to them. This communication method is
very important.”

“This answer from Mr. Atze
Schaap remains fresh in my memory. In contrast, domestic dairy companies
usually adopt commercial advertisements as the major means of communication,
aiming at boosting the consumption. Whether by placing advertisements directly
or by sponsoring activities and events, the companies ‘communicate’ with
customers only in order to stimulate instant growth of consumption. ”

“Fairly speaking, at the early stage or at the
rapid growth phase of an industry’s development, it is understandable if a
company adopt such a strategy, but when the industry developed to a certain
stage when the market can no longer digest all the production, a single
company’s expansion will only lead to monopoly rather than growth of the
industry. Therefore, the whole industry should work together to maintain and
broaden the consumer market by honestly and sincerely communicating with the
consumers. This is a social responsibility that all companies should shoulder.”

Chang Yi, Deputy
General Manager of Beijing Capital Agribusiness Group and President of Beijing
Dairy Association, interpreting the spirit of Beijing’s dairy industry

“The good communication embodied
in the first Beijing Milk Culture Festival set an excellent example for the
industry. The festival delved into the spiritual wealth of Beijing’s dairy
industry, passed credible and understandable dairy knowledge to the consumers,
built a platform for the dairy companies and the consumers to effectively
communicate with each other on the basis of mutual trust, and allowed more
children and their families to participate in the activities. In this way the
festival not only won the consumers’ trust, but also helped to lift consumer
confidence. This, in fact, is not the responsibility of any single company or
any individual, but the responsibility of the entire industry.”

“As for the communication
capacity, the industry may draw on the experiences of SDDDC. So far SDDDC have
five partners from the Dutch side, including Wageningen University & Research,
Royal FrieslandCampina N.V., CRV Breeding Company, Qlip Testing Company and
Rabobank Group, which are academic institution, dairy company, service supplier
and financial institution respectively. After I joined SDDDC, I once asked
those partners why they decided to participated in this joint effort, and they
answered me that they wanted to get an ‘entrance ticket’. SDDDC provides a
channel and a platform for them to voluntarily and actively communicate with
the dairy industry and market in China, to spread their idea of From Grass to
Glass.”

“On the Chinese side, after China Agricultural
University, many influential national or regional dairy companies such as Yili,
Nanjing Weigang Dairy Co., Ltd, Henan Huahuaniu Dairy Co., Ltd and Yunnan
Niuniu Animal Husbandry Co., Ltd, all joined SDDDC one after another. Beijing
Eastern Bell Technology Group, as a leading service supplier for the entire
ruminant farming industry chain, was among the first partners of the Center.
But the partners on the Chinese side should work more actively and let their
voice heard in the operation of this international platform. Domestic dairy companies
should shoulder equal responsibility as Royal FrieslandCampina N.V. and other
leading Dutch dairy companies do, to build together this platform of sharing
knowledge and experiences.”

Partners of
SDDDC sharing their predictions of the future of dairy industry on fifth
anniversary celebration of SDDDC

“In comparison with the
global dairy industry, China’s dairy industry needs to improve its soft power
by upgrading its communication strategy, rather than to merely improve its hard
power by increasing sales and profits. Financial reports are only for the investors
and shareholders, but besides pursuing financial success, the companies should also
take their social responsibility to exert positive influences on the future of
the world and the human beings. Better communication capacity is essential for
lifting consumer confidence, increasing consumption of dairy products, and
extending a brand’s influence. This is what China’s dairy industry is lack of
in comparison with its counterpart in the Netherlands.”

To Understand the
Revitalization of Dairy Industry at a New Height

“The great progress that China’s dairy
industry has made over the past decade needs to be fully recognized. This time
when we talk about revitalization, its meaning is different from when it was
first proposed in 2008—it is a revitalization at a new height. The current
total herd in China is slightly lower than that of 2008, but after withstanding
the tests over the past ten years, the dairy farms and their cows and teams are
of much higher quality than ten years ago. This is our achievement.”

“Therefore, this
time when we talk about revitalization, our target should be the two strongest
dairy powers in the world: one is the power of quantity (the United States) and
the other is the power of industrial strength (the Netherlands). In comparison
with them, we need to pay more attention to issues such as industrial
ecosystem, innovation, intellectual property protection, and communication
capacity. We need to organize and hold conferences and events that are more meaningful,
more valuable in the sense that they can help to unite the thinking of the
practitioners in the industry. Only in this way can China’s dairy industry move
forward, can we fill our glass with our own milk, and only in this way can we
fulfill our mission of a healthier China and a better life for all Chinese.”